CHICAGO - GEI Financial Services and their owners defrauded clients by taking at least $147,000 in fees and capital withdrawals from one of their funds, the Securities and Exchange Commission says in federal court.
One of the owners, Norman Goldstein, currently manages more than $7 million in assets, even though Illinois had stripped him of securities registrations in 2011, according to the complaint.
Neither he nor the other GEI owner - his wife, Laurie Gatherum - told investors about the predicament, regulators say.
"GEI Financial has never had adequate written compliance policies and procedures or a code of ethics even though SEC examiners alerted the firm and its owners of these deficiencies in 2008," according to the complaint. "GEI Financial has not even updated its Form ADV - a submission required of all registered investment advisers - in four years.
"For years, the defendants have demonstrated a complete disregard towards the securities laws, their clients, and the state of Illinois. They long ago abandoned their fiduciary responsibilities towards their clients. The defendants must be called to account for their past misdeeds, and stopped from further harming their clients and the investing public."
Goldstein, 68, and Gatherum, 67, allegedly started GEI Financial Services in 1987 and provided investment advice to approximately 31 separately managed accounts with assets totaling $16.6 million.
The GEI Health Care Fund that they are accused of looting launched in 2001, according to the complaint.
"GEI Management has received $177,216 in management fees and $357,418 in performance fees from the fund since June 2008," the complaint states. "Goldstein and Gatherum have received at least $10,000 in direct compensation from GEI Financial since January 2011 and have received other benefits, including payments for gym and vacation club memberships, health and disability insurance premiums, and a car loan."
The SEC says there were five investors in the fund, contributing a total of $3.9 million.
After discovering that GEI did not have written compliance procedures during an on-site review of the firm in 2008, the SEC allegedly returned three years later and discovered that the required policies were still not in place and that the owners had misappropriated at least $147,000 from the fund since 2009.
"In May 2012, GEI Management liquidated a considerable portion of the fund's holdings and by June 25, 2012, the fund sold all of its assets," according to the complaint. "This sell-off was triggered by significant investor redemptions. Investors learned from SEC staff that Goldstein lost his securities registrations in Illinois and investors were concerned about their money being managed by Goldstein. By the end of August 2012, GEI Management redeemed all investors' interests in the Fund and returned approximately $3.6 million to investors. GEI Management, however, still owes the Fund at least $147,000 in inappropriate capital withdrawals and excessive fees."
The couple and their firm face 12 counts total of violating the Advisers Act, and aiding and abetting such violation. The SEC seeks an injunction and a civil penalty.
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